Neha Shah is the purchasing agent for a firm that sells industrial valves and fl

Question

Neha Shah is the purchasing agent for a firm that sells industrial valves and fluid control devices. One of the most popular valves is the KA1, which has an annual demand of 6,000 units. The cost of each valve is $120 and the inventory carrying cost is estimated to be 8% of the cost of each valve. It also costs her an additional $45 each time she orders and it takes about two weeks for an order to arrive from the supplier. The demand for KA1 valves is approximately 120 per week. Compute the EOQ, ROP, optimal number of orders per year, and total annual cost for KA1 valves. I need it in Excel form

Explanation / Answer

Annual demand 6000 valves Cost of each valve 120 Inventory carrying cost (8%) 9.6 ordering cost 45 time for each order 2 weeks demand per week 120 valves EOQ = sqrt (2 * quantity*cost per order /carrying cost per order)           = sqrt ( 2 * 6000 * 45/9.6)          = sqrt (56250)         = 237 valves optimal number of orders = Annual demand / EOQ                                                       = 6000 /237                                                        = 25.31                                                        = 25 orders Ordering cost = 25 * 45 = 1125 Carrying cost = Average inventory held * carrying cost                             = 237/2 * 9.6                              = 1137.60 Annual cost for valves = cost of valves + ordering cost + carrying cost                                               = 6000 * 120 + 1125 + 1137.60                                               = 8262.60 Reorder point = ( Daily usage * lead time)                               = 120 /7 * 14                                = 240 units

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